disney/19″/mike1st/mark2nd

DAN TURNER

Staff Reporter

The Mouse seems to have thoroughly digested the TV network it ate for lunch and is ready to jump into the pool, if last week’s splash of activity by Walt Disney Co. is any indicator.

The same week that Disney announced it was buying a major stake in Miracle Mile-based cable network E! Entertainment Television, it put out a one-paragraph statement announcing plans to shed its large newspaper and magazine group.

Meanwhile, the ever-profitable Disney surprised Wall Street by reporting higher-than-expected first-quarter earnings.

Analysts say that last week’s actions indicate Disney has completed most of the grunt work involved with integrating Capital Cities/ABC Inc. into its system (nearly a year after completing its acquisition of the network), and is ready to get on with the business of taking over the entertainment world.

“In terms of just getting the organizational and decision-making structure at ABC working, I think it’s all in place at this time,” said entertainment analyst Steve Cesinger with L.A.-based investment bank Greif & Co.

E! Entertainment, which is believed to have turned a profit last year for the first time in its history, is jointly owned by Time Warner Inc. and four cable system operators Cox Enterprises Inc., Continental Cablevision Inc., Telecommunications Inc. and Comcast Corp.

Time Warner owns approximately 60 percent of the company, while the other partners each own about 10 percent.

The decision by Time Warner to sell its interest in the cable network is seen by analysts as an effort to pay down debt following its recent acquisition of Turner Broadcasting System Inc. Under the terms of the deal announced last week, Disney and Comcast have agreed to pay $312 million for Time Warner’s share of E! Entertainment.

The resulting ownership structure will place 68.8 percent of the network (Time Warner’s stake plus Comcast’s stake) under the control of Disney and Comcast. A slight majority of the ownership will be held by Comcast, meaning its programming unit, C3, will manage E! Entertainment.

The effects the ownership change might have on E!’s programming is unknown. Some observers have questioned whether Disney will want to be associated with some of E!’s more controversial shows, particularly the television version of shock jock Howard Stern’s radio program.

Still, analysts believe Disney will stay out of the programming side at E!, other than using it as another outlet for its own shows.

Meanwhile, Disney announced that it intends to “begin exploring its strategic options” with regard to the publishing operations it acquired when it bought ABC. Those operations consist of 10 daily newspapers, including the Fort Worth Star-Telegram and the Kansas City Star; three trade publication groups that put out such magazines as Multichannel News, Women’s Wear Daily and Institutional Investor; and one consumer magazine West L.A.-based Los Angeles magazine.

Disney is believed to be looking to sell the entire division as a group. One potential investor, former Los Angeles magazine owner Seth Baker, said that when he approached Disney officials about the possibility of buying the publication, he was told that pieces of the division would not be sold off individually.

But analysts say it’s unlikely anyone would buy the entire division because of its diversity. All told, the publications could fetch as much as $2.5 billion, analysts said, if estimates that they bring in $250 million in annual earnings are accurate (magazines typically sell for between 10 and 12 times earnings).

The division is being sold because print media don’t really fit in with Disney’s core focus, according to Cesinger. “Clearly, Disney views paper media as declining, and electronic media as the media of the future.”

The publications also may not be profitable enough to suit Disney executives. The company’s goal is to achieve earnings growth of 20 percent a year for the next five years, and the publications group was “only” growing at a rate of 15 percent, according to David Davis, a vice president with Century City-based specialty investment bank Houlihan, Lokey, Howard & Zukin.

Disney is well on its way toward achieving its goal so far in 1997. Its net income for the first fiscal quarter ended Dec. 31 was $749 million ($1.09 a share), compared with $497 million (93 cents a share) for the like period in fiscal 1996. That represents a 50.7 percent jump in net income.

Disney is expected to use the proceeds from any publication sales to help pay down debt from the ABC acquisition.

With Time Warner expected to unload still more of its cable TV holdings, some analysts suggested that Disney may be in the market to buy them. Davis, however, said most of the other assets Time Warner is likely to sell are cable systems rather than programming networks, and Disney has never indicated that it wants to be in the cable systems business.

Davis further said that expansion in overseas markets is a more likely direction for Disney to pursue, especially the building of more theme parks in other countries. Better exploiting its films and TV shows overseas is also a top priority at Disney, Davis said.